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Wednesday, July 19, 2006

Hurdles before Transcorp


Features of the week:

Still battling to settle the initial 50 per cent of its preferred bid, Transnational Corporation (Transcorp), latest owner of the Nigerian Telecommunications Limited (NITEL), has some hurdles to surmount, reports REMMY NWEKE.

ON July 3, this year when the Bureau of Public Enterprises (BPE) and Transcorp announced the disposing and acquisition of the first national carrier, NITEL, for $750 million, about N96,401,250,000 billion, lots of excitement arose in the industry, which were both positive and negative.

No doubt, there are some hurdles awaiting the new management of NITEL based on some stakeholders’ perspective.

Whereas Transcorp intends to wake NITEL from its elongated slumber by turning it to a more effective and efficient telecom provider on the continent in the areas of wireless, broadband, video, voice and data markets. Some stakeholders are concerned over the future of NITEL in the hands of its new management, Transcorp, mostly beyond 2007, when a new administration is expected to come in.

Transcorp

Incorporated on Wednesday, November 17, 2004, Transcorp Plc, as said by its advocates came as a response to the need to establish a “Mega Corporation” in the country and owned by Nigerians.

It plans to respond to market opportunities that require heavy capital investment not just at home but in the sub-African region and globally. Whilst serving as a vehicle to reposition Nigeria for global competitiveness and acting as conduit for mobilizing highly skilled Nigerians in the diaspora to return home and contribute to nation-building.

NITEL

Incorporated in 1974, NITEL, was a dominant fixed line operator in the country before the liberalisation of the telecom industry. The company with approximately 77 per cent of the market has operational presence in all 36 states of Nigeria including the Federal Capital Territory (FCT) Abuja, with MTel as its fully owned subsidiary.

MTel ranks fourth among the four Global System for Mobile communications (GSM) operators in the country, with approximately 1 million subscribers as at December 31, 2005.

NITEL is reputed to have the most extensive network in the country, with the ability to provide telecom services to its customers throughout the country.

In addition, NITEL has 7.33 per cent share in South Atlantic Telecommunication/ West African Submarine Cable Organisation (SAT3/WASC), 6.91 per cent share in Regional African Satellite Organisation (RASCOM), 0.21 per cent share in International Maritime Satellite Organisation (INMARSAT), 0.60 per cent share in International Telecommunication Satellite Organisation(INTELSAT) which was liquidated last year as a result of Intelsat privatization, and 0.07 per cent shares in ICO Global Communications Ltd (I-CO).

And in this deal, Transcorp is partnering with British Telecom (BT), with which it has a Memorandum of Understanding (MoU). BT recently had undergone a similar transformation from public to privately managed telecom institution.

Transcorp dreams

However, Transcorp is optimistic that it could make a major contribution towards transformation of the telco via its offerings and coverage nationwide and globally.

According to Transcorp chairperson, Dr. (Mrs) Ndi Okereke-Onyiuke, NITEL presents a unique opportunity to convert under-exploited group of assets into a formidable telecommunications entity through aggressive build out of networks and planned spending of additional $1 billion before the end of 2008. Just as it will focus on providing services that enhance personal and professional experiences of Nigerians.

Next steps

As said by Dr (Mrs) Onyiuke, new NITEL will endear itself to customers, and consequently embrace the new competition in the industry represented by the Universal Licensing Regime (ULR).

So, the acquisition is touted as the only logical step for the firm in its vision of developing a world class enterprises and infrastructure under strong Nigerian management and leadership.

She also said that the development of the industry is key to the future of the country and the economy, hence, “the acquisition will create substantial value for customers of NITEL, stockholders of Transcorp, and all other stakeholders. It will benefit customers through new services and expanded service capabilities.”

Pointing out that the firm is confident that this is an acquisition Transcorp could execute, “... As the company has assembled a first class team to be led by a highly talented team of Nigerian professionals with experiences in the leading telecom companies around the world, to be supported by the skills and technical knowledge of BT engineers.”

She further said, Transcorp is to “pursue a simultaneous programme of internal efficiency and aggressive rollout at NITEL,” noting that hitherto, the firm, was uniquely positioned to capture the benefits of a turnaround of NITEL whose assets have been historically under-managed and have suffered from under-investment in network and customer propositions.

State of Transcorp in NITEL

At the proclamation of NITEL sale, BPE had indicated that Transcorp would pay 50 per cent of the total bid, which amounts to $500m, within seven working days, but as at Friday, July 13, Transcorp paid only 10 per cent, which is N9.6bn, while asking for renegotiation of the terms from 51 per cent share for Transcorp and 24 for its technical partners led by BT to 38 and 37 respectively. Equally it reportedly asked for 60 days extension to pay-up, which has been granted by the National Council on Privatisation (NCP).

Government is expected to use this money to settle its outstanding commitment to NITEL employees prior to the latest deal.

Negotiated deal option

BPE led by Mrs. Irene Chigbue while explaining the reason behind the choice of negotiated deal with Transcorp, said it was precipitated by several factors including the antecedent of selling NITEL over the years on three occasions, which proved abortive.

These consist of the Investors International Limited (IIL) failure to make payments after bidding $1.317b, Pentascope failure to meet contract obligations, resulting in cancellation of same and Orascom Telecom’s bid of $256.53m which faced outright rejection.

BPE also said, a fourth round of competitive bidding would likely take 12 months or longer during which time NITEL’s value would continue to decline as liabilities/debts increase, service/market share decrease, and investors grow cautious as Nigeria’s election approaches.

Investors’ caution, BPE noted, in turn, will lead to less interest, less competition, and lower prices bid for many reasons. Overall, these add up to a single, compelling reason for its sale sooner rather than later, and that is, NITEL value declines as its financial condition continues to erode; as seen in a summary of its liabilities, revenue, and market share.

Initially, BPE said, NITEL loses value daily as liabilities increase and revenue declines and that in 2003, for instance, NITEL liabilities amounted to N73.8bn. But as at October last year, liabilities had increased to approximated N130bn and had continued to grow. The information further stated that since 2002, NITEL on an annual basis generated N15bn pre tax income, whereas, as at September last year it only generated N1.5bn in pre tax income, even as the national carrier generated N40.9bn in revenue, with N33.9bn only collected.

Similarly, in 2005, the telco generated N22.8bn in revenue, N16.9bn was collected, indicating that collection rate falls from 83 per cent to 73 per cent, just to show its depreciating value.

“Given that Nigeria’s bargaining position regarding NITEL’s sale can only decline over time, Nigeria is well served to close a transaction while it can still negotiate from a position of strength as qualified investors remain interested. The only question that remains is how quickly to close the deal and make it the best possible for Nigeria? Hence, the negotiated sale, a commonly used process for many major transactions the world over, including telecommunications,” BPE submitted.

For its Director-General, Mrs. Chigbue, negotiated sale of NITEL was the best option. “This is a great day for all NITEL stakeholders and a significant step for NITEL that will drive real choice for customers on a national basis.”

Fate

One issue that has been on the mind of stakeholders since July 3, has been the antecedents of Transcorp and its promoters. To some stakeholders who demanded anonymity, the vexed issue that some sponsors of third term agenda which some National Assembly members led by Chief Uche Chukwumerije opposed were once listed as owners and directors of Transcorp, as well as funders.

Scuttling of the amendment of the constitution in this regard is seen as another victory for democracy. Out of 14 directors of Transcorp, at least, seven were fingered in the aborted scheme.

It was not surprising, therefore, that chairman, sub-committee on NITEL in the House of Representatives, Mr. Nasir Garba Dantiye, informed afterwards of his committee’s desire to probe the sale. He accused BPE of collaborating with FG to dispose NITEL at what he called “a give away price.”

Additionally, he alleged Transcorp was fronting for a top government official, with a specific interest in the changed rules of the game from 51 to 75 per cent shares meant for sale as was offered for bidding before now.

Stakeholders’ view

Responding to the development, United Kingdom-based Nigerian professor of telecommunications, Austin Odinma, told our correspondent that the sale of NITEL to a business outfit that is predominantly owned by Nigerians is a very welcome one.

He expressed optimism that efforts would now be made to make NITEL function effectively.

“NITEL is a gold mine as I have said in many of my papers; I believe that with the proper people in place to manage NITEL, NITEL/MTEL would surpass its competitors in less than 15 months,” he said.

Noting, there are infrastructural changes needed to differentiate MTEL and if properly handled, it should not take up to December 2007, before the new NITEL will silence those who thought that it could never be revived.

For the chief executive, Telecom Answers Associates, Mr. Titi Omo-Ettu, privatisation of NITEL has really never been an issue of money but an issue of track record of the core investor.

Regrettably, he said, nothing in the BPE’s strategies respects this position and these results are therefore largely predictable.

“When the IIL failed to meet its financial obligation in those days, the reason many analysts did not recommend a staggered payment option to government was that IIL’s track record was in question and the fallout was probably a blessing in disguise,” he said.

He wondered what really distinguishes Transcorp from IIL, observing that moving the goal post from 51 per cent to 75 per cent is mere gimmick of bankers’ as what has happened is that the offer price of $1.3b has been slashed to $500m.

He said, “I do not know if that is a good offer but my mind tells me it is ‘over the bar’ yet you never can tell, we may be pleasantly surprised.”

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